Frierdich v. Mottaz

• Decision Date: 21 June 2002
• Docket Number: No. 01-4058.,01-4058.
• Citation: 294 F.3d 864
• Parties: In re Michael V. FRIERDICH, Sr., Debtor, v. Steven V. MOTTAZ, Trustee of the Estate of Michael V. Frierdich, Sr., Plaintiff-Appellee, v. Beverly Oswald, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

294 F.3d 864

In re Michael V. FRIERDICH, Sr., Debtor, v. Steven V. MOTTAZ, Trustee of the Estate of Michael V. Frierdich, Sr., Plaintiff-Appellee, v. Beverly Oswald, Defendant-Appellant.

No. 01-4058.

United States Court of Appeals, Seventh Circuit.

Argued May 20, 2002.

Decided June 21, 2002.

Paul J. Puricelli (argued), St. Louis, MO, for Appellant.

Steven N. Mottaz (argued), Alton, IL, for Appellee.

BEFORE: EASTERBROOK, ROVNER, and EVANS, Circuit Judges.

TERENCE T. EVANS, Circuit Judge.

Michael Frierdich is a Chapter 7 debtor, which means, in simplest terms, that he does not have enough assets to pay off a staggering amount of debt. This case, between the bankruptcy trustee (Mottaz) and Frierdich's wife (Oswald), turns on when Frierdich transferred shares of stock (or their proceeds, worth $400,000) to Oswald. The answer to that question affects whether Mottaz can upset the transfer and obtain its proceeds for distribution to Frierdich's creditors. Oswald, who would just as soon keep the $400,000, has already had two swings at this issue. She lost before the bankruptcy judge and the district judge. We will ring her up on strikes.

Because this case arose on summary judgment, we state the facts in the light most favorable to Oswald. We turn first to the events of early 1998. At that time, Frierdich was a director and the treasurer of Columbia Centre, Inc., a closely held company, and owned 360 of its outstanding 1,000 shares. Paul Frierdich (his brother) and Joe Koppeis held the remaining shares. (Paul and Michael Frierdich both submitted affidavits saying that Columbia Centre never issued stock certificates to its shareholders. A certificate — "Certificate # 6"—evidencing Frierdich's shares turned up but had never been signed.) The stock record book was also lost.

Meanwhile Frierdich and Oswald were pondering the business of marriage. In anticipation of their engagement, they decided to take stock of their respective financial situations. Based on information that Frierdich provided to Oswald, they determined that the value of Frierdich's estate exceeded that of Oswald's. So they assented to an arrangement under which Frierdich would transfer his Columbia Centre stock to Oswald and she would waive any interest in Frierdich's estate. On January 7, 1998, Frierdich and Oswald were engaged.

The next day Frierdich executed a "Stock Transfer/Stock Power." It assigned to Oswald his interest in the stock and gave the officers of Columbia Centre power of attorney to transfer the stock on the company books. On January 16 Frierdich sent the transfer document, along with transfer instructions, to Paul Frierdich. The transmittal letter read: "Please transfer stock as of Jan. 8, 1998 to Bev. This is part of the prenuptial agreement we have. Call if any questions." On February 10 Paul Frierdich sent a "speed message" reading:

Mike and Bev —

I received your stock transfer of all Mike's stock in Columbia Centre Inc. Shopping Center Corporation, and accordingly the transfer to Bev Oswald of his 36%. We do not need anything else for the transfer.

Oswald never received a stock certificate and no notation on the (missing) stock record book was ever made.

Frierdich and Oswald each signed a prenuptial "waiver" to any interest in the other's estate on March 4. Paragraph six of Oswald's waiver read:

It is the intent of the undersigned that her present and future interest in any assets of Michael V. Frierdich is specifically limited to those assets which Michael V. Frierdich shall have voluntarily transferred an interest to the undersigned and only then in circumstances wherein he has affirmatively taken action transferring an ownership interest to the undersigned. Reference herein includes interest Michael V. Frierdich has previously and voluntarily, by execution of a stock transfer, assigned all his rights, title, and interest in and to his stock ownership in a Columbia, Illinois shopping center to Beverly K. Oswald.

Frierdich and Oswald were married 3 days later.

In August or September of 1998, Koppeis and Paul Frierdich approached Frierdich about having the corporation repurchase his shares in Columbia Centre. They offered him $250,000, a price that increased, based on financial appraisals, to $400,000. Koppeis, who was Columbia Centre's president and managing officer, was not aware of any transfer to Oswald.

In September a sale agreement was forwarded to Frierdich. It listed him as the seller. On a draft of the agreement Frierdich crossed out his name, substituted "Bev Oswald" as the seller, and sent the documents back to Paul Frierdich with a transmittal letter reading: "I believe Bev needs to sign this because of the transfer document I gave her several months ago. The money should go to her." The final agreement of sale, however, again listed Frierdich as the seller. Frierdich signed that agreement, warranting that he held title to the stock and that it was not subject to any agreement that would restrict its sale. Koppeis and Paul Frierdich also signed the agreement. At closing, which apparently took place on September 10, Columbia Centre issued Frierdich a $400,000 check. He signed the receipt and deposited the check in Oswald's account after endorsing it "for deposit." At that same time, Frierdich resigned his positions with the company.

In a letter dated September 23, 1998, to Union Planters Bank, with which Oswald and Frierdich's son were trying to arrange a loan for a real estate purchase, Frierdich stated:

I transferred some $400,000.00 to Beverly K. Oswald as a gift to a spouse, there are no gift tax consequences. There is an unlimited marital deduction for gifts to a spouse, and as such, this is the net amount for her to utilize. I sold my stock in a shopping center for a sum in excess of that amount and was only required to pay capital gains tax on some 20%. My interest in the shopping center was sold in 1998.

Involuntary bankruptcy proceedings commenced on February 17, 1999. Frierdich's schedules indicate that, as of the filing, he had debts of $8,530,395 and assets of $1,200. Twelve lawsuits were pending against Frierdich, five of which had been pending prior to September 10, 1998. The claims on file in the bankruptcy proceeding reflect debts in excess of $400,000 incurred prior to January 1, 1998, including federal taxes of approximately $240,000 owing. Frierdich was also the major shareholder and guarantor of many of the debts of South of the Border, Inc., which had filed for bankruptcy (apparently in July 1998).

Mottaz, the trustee, filed this adversary proceeding against Oswald seeking to avoid Frierdich's transfer to her of the stock proceeds from the September 10, 1998 sale. The bankruptcy judge (Fines, J.), finding no dispute that the relevant transfer occurred in September, and not January, entered summary judgment for Mottaz in the amount of $400,000. He held, in the alternative, that even if the transfer occurred in January, it was voidable. Oswald appealed and the district judge affirmed.

In a second appeal from a bankruptcy court's decision, we apply the same standard of review as did the district court. In re Marrs-Winn Co., 103 F.3d 584, 589 (7th Cir.1996). Because this case was decided on summary judgment, see Fed.R.Bankr.P. 7056, our review is de novo.

This case implicates two avoidance provisions of the federal bankruptcy code. Title 11 U.S.C. § 548(a)(1)(A) provides that a trustee may avoid a transfer by a debtor made "within one year before the date of the filing" of the bankruptcy petition if the debtor "made such transfer ... with actual intent to hinder, delay, or defraud any entity to which the debtor was or became ... indebted."¹ Title 11 U.S.C. § 544(b)(1) allows the trustee to commandeer the rights of an unsecured creditor who could have avoided the transfer under applicable law, in this case the Illinois Fraudulent Transfer Act. See 740 Ill. Comp.Stat. 160/5. For our purposes the key difference between these two avoidance routes is that the Illinois Fraudulent Transfer Act does not contain a one-year "look back" provision. Thus if the transfer in the present case occurred in January of 1998, it occurred more than one year before the February 17, 1999, bankruptcy filing and would fall outside of § 548's one-year "look back" provision. Mottaz would then be relegated to avoiding the transfer under § 544. If, on the other hand, the transfer did not occur in January, but rather occurred when the proceeds of the stock sale were deposited in September 1998, the transfer would fall within one year of the February 1999 bankruptcy filing and could be avoided, if there was actual intent to defraud, under § 548(a)(1)(A). The burden of proving a fraudulent transfer under § 548 is on the trustee. 5 Collier on Bankruptcy ¶ 548.10, p. 548-80 (15th ed. rev.2002).

So to the key issue we turn: whether Frierdich transferred his Columbia Centre stock to Oswald in January of 1998. Under the bankruptcy code,

a transfer is made when such transfer is so perfected that a bona fide purchaser from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest in the property transferred that is superior to the interest in such property of the transferee.

11 U.S.C. § 548(d)(1). This provision presumes a "transfer," which the bankruptcy code defines as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property." 11 U.S.C. § 101(54). Although this definition of transfer is obviously federal, its references to "property" and "interest in property" require an analysis of whether a property interest was created under state law. Barnhill v. Johnson, 503 U.S. 393, 398, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992); In re Atchison, 925 F.2d 209, 210-11 (7th Cir.1991) ("Absent a federal provision to the contrary, a debtor's interest in property is determined by...